Thayer Watkins

Economic Surpluses

The Simplistic or Naive View

This treatment of economic surpluses takes the production of a society as being determined by the resources of land, labor and capital available. What is left after providing for the maintenance of the resources, the necessary consumption for labor and maintenance for capital and land, is considered the surplus. This surplus can go into a number of different uses, such as: Only the last two would generally be considered productive. Raising an increased population would also be productive in as much as it results in an increased labor force but it is recognized that if there is not increased capital and training the increased labor force may be unproductive and superfluous. Raising a replacement population would be in the nature of necessary consumption, the same as feeding the current labor force. Investment in the wrong types of capital goods could also be a waste of resources.

The productive power of the resources of an economy may also be wasted in the form of idle resources, as in the Great Depression of the 1930's.

Investment in military armament is a complex matter. Providing for defense is a necessity. Investment in weapons of aggression may appear to be productive if it results in conquest. But from the perspective of human society war destroys resources and wastes production even though from the viewpoint of the victor it appears to be productive.

The Less Simplistic View

The simplistic view of surpluses is not so much wrong as incomplete. In some of the unproductive uses of a society's surplus there may be knowledge and skills gained that are useful for other things. For example, there are many technological developments that have their origin in armament and weapons production.

The simplistic view takes production as given but production requires incentives and some of the required incentives may be luxury goods. Thus some luxury goods could be necessary for achieving high levels of efficiency and production. Of course, this is not always the case and the luxury goods may be produced for an idle, parasitic class which has no role in production.

The simplistic view would suggest that it is a good thing for an society to forego unnecessary consumption; i.e., to save. Such saving is thought to encourage investment in capital goods. But if the investment demand is not there in a market economy then economic depression and idle resources result.

The centralized command economies presumed that if enough resources were diverted into investment growth and prosperity would follow. The experience was quite different. Much of the investment was wasted as a resulty of imbalances in the investment program.

  • luxurious private consumption
  • public displays
  • public monuments
  • unnecesssary military armaments
  • cultural creations
  • leisure
  • raising of an increasing population
  • investment in capital goods
  • research and development
Possible Uses of the Economic Surplus of a Society

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